Going with the flow

Ruidoso Council schedules another workshop on water rates

Before adopting a new water rate schedule, Ruidoso village councilors want another workshop to see examples of how various customers would be affected by a new billing approach.

Customers would pay a base fee that either reduces or doesn't include any water consumption, would pay based on smaller increments of use and big users would be charged top dollar. Councilors also were interested in the possibility of seasonal rates. They directed staff at a workshop last week to schedule another session on the rates.

While conservation is a goal because of dwindling resources, rates must go up to cover the cost of maintaining the system, producing the water and to begin building a reserve for replacement and capital improvements, said Ray De La Vega of Wilson & Co.

"We need to establish an annual replacement plan and extension of services, improvements to meters, valves, and hydrants," he said. "The automation of meter service is a next step, which also is valuable in detecting leaks that may be underground and not easily discovered."

The village must reduce the amount of treated water lost to leaks in its lines, he said. The village's loss is estimated at 35 percent when the industry standard is 10 percent, he said. Regularly replacing lines can reduce employee overtime for unscheduled repairs, he said.

The flip side of conservation is if customers use less water, the village would see a drop in the revenue stream from monthly water bills, he noted.

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Reviewing some of the data presented in a previous workshop, De La Vega said the operation and maintenance figures show that the fixed costs to the village to produce and deliver 1,000 gallons of water is $5.74, broken down into $3.10 for operating costs and $2.64 for production costs, for a total cost of $4.2 million in 2011 for 730 million gallons produced.

By far, the majority of customers fall within the under 4,000 gallon per month consumption category. To see more of those customers pay a charge above the base charge to maintain the system, De La Vega proposed a residential base charge of $22.89, including just the first 2,000 gallons, instead of 4,000 gallons and the same base charge for commercial covering the first 1,000 gallons. Another option would be a base charge of $15.89 with no consumption allowance, which would help one-person households. The average residential household consumes from 2,600 gallons to 5,900 gallons per month with an annual average of 4,300 gallons, De La Vega said.

"If they are using 4,000 gallons and the village is paying $5.78 a gallon, you're actually subsidizing and paying them for the use of the water," he told councilors. "When you set up a utility like that, it's real easy to not get healthy real quick."

Sixty-nine percent of the customers use 4,000 gallons or less and 89 percent use 8,000 gallons or less. "That's the majority of our class and we need to be able to make some of the operational money from those groups to have a healthy utility."

As for water rates charged to residents currently, he said no one in the village could recall an increase since 2005, except for annual consumer price index adjustments.

Councilor Lynn Crawford pointed out that those CPI adjustments added up to an 18.9 percent increase. They were 10.7 percent for 2007 to 2009; 2.5 percent 2010 to 2012; 2.7 percent 2011-2012; and 3 percent for 2012-2013.

"That's a common thing and not a 20 percent jump (all at once)," De La Vega said.

"It's still an increase, 20 percent in five years, extra money," Crawford said. Businesses must pass along increased costs to their customers, he said.

De La Vega showed councilors a chart listing the impact of the village's 20 highest water residential users. In one year, they accounted for 31 million gallons consumed. "In January, when they have a consumption of 2.6 million gallons, those 20 users are almost the same as 600 of your average users," he pointed out. "The top 20 use 11 percent of all the (residential) water and they are a small fraction of the 7,000 residential customers. I think that is going to be an on-going process of identifying those users and seeing what remediation we can do. Some are single-family homes, but some are properties with multiple living units and a single meter. This either will hit them pretty hard or they could install additional meters, which would help them out."

The installation would require a shut-off valve on the private side of the meter, he said. "This will be a multi-step process and a big part will be education."

The model is designed to recover the cost of producing and delivering water, including during the peak demand periods.

Under the proposed $22.89 base rate that includes 2,000 gallons, the residential base rate would generate $2 million and the per 1,000 gallon consumption rate beginning with the increment of 2,000 gallons to 4,000 gallons would generate another $2,782,696.72. The base rate of $2 million is needed to ensure the utility can be maintained. Larger users would pay a premium price per 1,000 gallons. "The more expensive the water is, the more people find ways to conserve," he said.

Under the second proposal, with no gallons included in a $15.89 base rate, the base rate would generate $1.46 million and consumption rates would produce $2.95 million, a decrease of about $369,000 in revenue.

"At that point you begin to rely heavily on the commodity charge to be able to operate the water utility," he said. "The intent of it was to help the less fortunate, but what also will happen, we also help folks who don't live here. If they are not using (water), we won't be gaining that additional $7 to go toward the utility."

Of the village's 9,601 monthly water accounts, 6,107 are billed to out of town addresses.

While he's aware councilors want to avoid punishing the less fortunate, the latter approach would be a boon to second homeowners who don't live in Ruidoso. Three to five months a year, the village supports a huge population, he said, adding, "We have an extensive system here to be able to provide for everyone."

Councilor Gloria Sayers asked about a seasonal rate approach with the base rate remaining the same, but commodity rates increasing from April to September when the town is awash with tourists.

"To be frank, it's a good idea and I have seen it before," De La Vega said. He will have to check out the software capability, he said.

Councilor Joseph Eby said while the base rate revenue would remain the same, conservation could impact the consumption of water and decrease the commodity revenue stream.

De La Vega said that's why it's important to maintain a sufficient base rate to cover the utility's needs. "It tells us we can't totally rely on the commodity charge," he said. "That's not a healthy way to run a utility."

"The base rate should take care of your system," Village Manager Debi Lee said. "And the people have control to use as much or little water as they can. The majority of our people are not water wasters."

Unfortunately, much of the revenue generated by a gross receipt tax designated for water system improvements was drained defending water-related lawsuits, leaving fewer dollars to replace old lines and decrease leakage, she said. "You use to spend $1 million a year replacing infrastructure, but that hasn't happened in years," Lee said.